Time-varying effects of search engine advertising on sales–An empirical investigation in E-commerce

Abstract

As a mainstream advertising channel, Search Engine Advertising (SEA) has a huge business impact and attracts a plethora of attention from both academia and industry. One important goal of SEA is to increase sales. Nevertheless, while previous research has studied multiple factors that are potentially related to the outcome of SEA campaigns, effects of these factors on actual sales generated by SEA remain understudied. It is also unclear whether and how such effects change over time in dynamic SEA campaigns that last for an extended period of time. As the first empirical investigation of the dynamic advertisement-sales relationship in SEA, this study builds an advertising response model within a time-varying coefficient (TVC) modeling framework, and estimates the model using a unique dataset from a large e-commerce retailer in the United States. Results reveal the effects of the advertising expenditure, consumer behaviors and advertisement characteristics on realized sales, and demonstrate that such effects on sales do change over time in non-linear ways. More importantly, we find that carryover has a stronger effect in generating sales than immediate or direct response does, and advertisers need to carefully decide how much to bid for higher ad positions. These findings have direct implications for business decision-making to launch more effective SEA campaigns and for SEA platforms to improve their pricing mechanism.